Precious metals drop

Prices shed some glaze as dollar heads up

Precious metal prices turned pale on Wednesday, 10 February 2010. A strong dollar decreased the appeal of precious metals as an alternate investment.

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.

On Wednesday, gold for April delivery ended at $1,076.3 an ounce, lower by $0.90 (0.08%) an ounce on the New York Mercantile Exchange. During intra day trading, gold dropped by almost 1.3% earlier during the day. Last week, gold lost 2.9%. For January 2010, gold lost 1.2%. Year to date, gold has shed 1.6%.

On Wednesday, March Comex silver futures ended lower by 13.5 cents (0.9%) at $15.3 an ounce. Last week, silver ended lower by 7.8%. In January 2010, silver shed 3.9%. Year to date in FY 2010, silver has dropped by almost 8.6%.

In the currency market on Wednesday, the dollar went up amid ongoing speculation about loan guarantees for Greece and a hint at a rate hike from Fed Chairman Ben Bernanke. The dollar index, which weighs the strength of dollar against the basket of six other currencies, went up by almost 0.5%. It rose almost 0.9% against the euro. The greenback has jumped 1% this month on concern that fiscal gaps in Greece, Spain and Portugal may widen.

Fed Chairman Bernanke today indicated in a prepared statement for a testimony before the House Financial Services Committee that the Fed might opt to raise the discount rate before long. Though Bernanke's statement was released, his actual testimony has been postponed.

Precious metal prices started slipping since past couple of weeks due to impending worries from China front where tightening monetary policies are bothering investors due to shaky demand of metals in coming months.

Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year.

Last year, after hitting a low at $807.30 per ounce on 15 January 2009, gold futures rallied almost 51% to hit an all-time high at $1217.40 per ounce during early December of 2009 but fell from those levels at the end. Silver futures had hit a low at $10.42 on 15 January 2009 and hit a high at $19.30 per ounce on 2 December 2009. Like gold, silver also ended lower than its all time high level.

At the MCX, gold prices for April delivery closed lower by Rs 42 (0.25%) at Rs 16,277 per ten grams. Prices rose to a high of Rs 16,372 per 10 grams and fell to a low of Rs 16,163 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 252 (1%) lower at Rs 24,263/Kg. Prices opened at Rs 24,501/kg and fell to a low of Rs 24,024/Kg during the day's trading.